HomeSMEs, directors & shareholdersTax disputesDisguised remuneration and APNs

If you are concerned about disguised remuneration schemes or have received an Accelerated Payment Notices (APNs) from the HMRC, we have the team of experts to help. Contact us today.

Disguised remuneration – an overview

Disguised remuneration is a term that is often used in a negative light to describe financial arrangements set up with the sole objective of avoiding any liability for taxes due on income, usually Pay As You Earn (“PAYE”) and National Insurance Contributions (“NICs”).

  • disguised remuneration schemes have gained this separate title to distinguish themselves from tax schemes which were at one point considered a valid component of tax planning. 
  • however, the increased use of such schemes (and thus the deprivation of increased amounts of tax receipts to the Treasury) led the government to introduce legislation to prohibit the use of such schemes set-up solely for the purpose of evading tax.

Initially these tax schemes were designed to allow payments which could simultaneously be deducted from corporation tax as an expense, but the use of director’s loan accounts to draw income perhaps led to tax scheme loans, comprising Employee Benefit Trusts (“EBTs”), and unregulated pension schemes, known as Employee Financed Retirement Benefit Schemes (“EFRBS”), where the “loan” nature of the payment was relied upon to avoid any charge for tax.

Legal changes dealing with disguised remuneration schemes

Over the past fifteen years, a wealth of legislation has been introduced by the government to target disguised remuneration schemes.

The ongoing changes to legislation has made it increasingly difficult for beneficiaries of these schemes (including EBTs and EFRBs) to interpret and understand their position. Often the beneficiaries are company directors and employees who are focussed on running their businesses and not the intricacies of new tax legislation. 

Initially changes were implemented through legislation referred to as “anti-avoidance measures” including the diversion of income and the use of Service Companies mitigate tax. 

  • further legislation was introduced in 2003 which sought to redefine and clarify what employment and income referred to, with the attempt to qualify who fell within the PAYE/NIC tax provisions, although the collection of PAYE/NIC has faced continuing problems (despite a number of amendments since) due to the ever changing nature of the tax schemes adopted;
  • more changes were then introduced by the Finance Act 2011 and then subsequently by the Finance Act 2017 and Finance Act (No.2) 2017 (“the Finance Acts 2017”);
  • importantly, the Finance Acts 2017 introduced the loan charge which is chargeable on disguised remuneration loans and imposed on companies or individuals who had participated in disguised remuneration schemes.

The government announced a review of the loan charge in December 2019, following an independent review of the loan charge policy by Sir Amyas Morse. This review led to a number of key changes to how the loan charge would be applied to companies and individuals who have participated in a disguised remuneration scheme. Once change was that it would only apply to loans made to individuals after 9 December 2010. Previously, the intention was that the loan charge apply to loans made after 6 April 1999.

When to take advice on disguised remuneration schemes

If you have received income from a disguised remuneration scheme since 9 December 2010, we would recommend you take advice. This is whether HMRC have raised an enquiry, issued a determination or not contacted you as yet. The earlier advice is taken regarding such schemes, the better, so you can be fully informed as to your rights, obligations and the options available to you.

Increasingly, directors of liquidated companies that were involved in a disguised remuneration scheme are finding themselves subject to a claim by both HMRC and the company liquidator.

  • HMRC can transfer personal liability to a director for PAYE arising from a disguised remuneration scheme where the correct notices are issued;
  • steps should be taken to verify that HMRC have followed the correct process to transfer liability from the liquidated company to a beneficiary (often a director or employee) of a disguised remuneration scheme;
  • a liquidator may have grounds to pursue a director for breach of his / her fiduciary duties to the company, if the liquidated company participated in a disguised remuneration scheme and this was not in the company’s interest. However, there are defences to such claims and conflicting case law as to a directors’ liability in these circumstances. A liquidator’s claim therefore needs to be carefully considered.
  • it is not always the case that if you are a participant in a disguised remuneration scheme, or a director of a company that has participated in a disguised remuneration scheme, that you will bear liability for all taxes that have arisen.
  • to assess your liability, the scheme documentation, trust arrangements and any other contractual aspects must be considered along with the professional advice provided at the time the scheme started. 

Accordingly, it is vital that you receive immediate accounting and legal advice on such matters and, if you are liable, assistance in mitigating such liability and in assessing the grounds for a potential claim against the adviser who recommended the scheme.

We can also assist to identify whether there is a valid claim against the advisers who recommended a disguised remuneration scheme. Whether there are sufficient merits to pursue a professional negligence claim, will be fact sensitive and turn on the advice given and the terms of the advisers engagement. Our team are experienced in assessing claims and where there has been negligent advice, we can assist you with a claim against the advisers with a view to helping you recover the losses incurred as a result of the negligent advice.

Accelerated Payment Notices or APNs

Given the raft of changes to legislation targeting disguised remuneration schemes, the fact that not all tax schemes are designed solely to avoid tax or are unreasonable and given the complexity of the plethora of tax legislation, HMRC have faced an increase in legal challenges over the past decade. This presented HMRC with a problem because they could not resource replies to these challenges quickly which meant a delay in resolution of these challenges and a delay in payment of taxes.

To address this challenges, since 2014 tax legislation was introduced which requires payments on account of tax liabilities arising under disguised remuneration schemes to be made up front. HMRC issued notices referred to as Accelerated Payment Notices (“APNs”) to request the payments on account of tax liabilities.

What is an APN?

It is a notice issued by HMRC to put a company on notice of taxes that HMRC believe are due and owing but which a company may have believed were not payable, given the company’s participation in a disguised remuneration scheme.

When is an APN likely to be received?

An APN is likely to be received where

  • there is an ongoing negotiation, dispute or investigation into a tax scheme in which a company or individual has participated:
  • the company has participated in a tax scheme which has been recommended by a tax advisor and which may already be subject to a settled dispute between HMRC and another taxpayer (e.g. via an appeal to the Tax Tribunal or the Courts). In this instance, a “Follower Notice” may be sent to other participants following the same (or a similar) scheme (perhaps provided by the same tax advisor):
  • disclosure of a tax arrangement has been made:
  • the appropriate notices have been issued pursuant to anti-abuse regulations.

How much is the APN likely to be?

The APN will usually be equivalent to the amount of “understated tax” as determined by HMRC.  This will be payable even if there is an appeal ongoing to a Tax Tribunal.

There is no right of appeal against an APN and the APN is payable within 90 days, although if negotiations are initiated then a further 30 days’ extension is permissible (if the 90 day period is due to expire) or alternatively HMRC may agree to withdraw the APN.

Can the APN be negotiated?

Yes it can. If you choose to negotiate yourself, you must be aware of HMRC’s internal procedures for doing to and this is particularly important when considering appeals against tax negotiations which may have been concluded by HMRC, as any such appeal may trigger the issue of an APN.

What if the APN is not paid?

If you are unable to pay the APN, it is critical that you engage and negotiate with HMRC as soon as possible.  Otherwise, if the APN is not paid within the stated 90 day period (and it has not been withdrawn and there is no extension) then penalties and surcharges will accrue in addition to the sum payable on the APN. 

HMRC will listen to any reasonable excuses for late payment but, as stated above, this will depend upon early engagement and negotiation of the sums payable under the notice.


At Francis Wilks & Jones we have considerable experience of assisting directors and business owners with threats of investigation by HMRC. We deal with all types of claims and schemes and their potential liability, particularly with regard to claims arising out of insolvency or claims for breach of a director’s fiduciary duties. Whatever your enquiry, our director services team can help.

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